Demonetisation, farmer suicides, and the Union budget

After two successive years of drought, 2016 was turning out to be a relatively better year for farmers till 8 November. The decision to scrap high-value currency notes, announced on that day, seems to have hit the farm sector the hardest.

While credible and timely data on farm incomes and output is hard to come by, a look at the trends in farm prices suggest that the sector may have been adversely affected by the note ban. As the chart below shows, the prices of farm products, especially that of perishables such as fruits and vegetables, fell sharply in November.

There are three key reasons why agriculture is likely to be the worst affected by the note ban. One, the policy coincided with harvest of kharif crops, and farmers are facing difficulty selling their crops due to the currency crunch. Two, lack of cash must have posed difficulty for farmers in sowing of rabi crops. Although, official estimates so far indicate normal sowing activity, the initial estimates are only provisional in nature. Three, unlike other sectors, farm output is perishable in nature and hence less suited to withstand temporary adjustment to demand. It needs to be kept in mind that relatively more perishable horticultural production (fruits and vegetables) exceeded food grain production by around 12% in 2015-16.

Unlike in the case of other sectors, incomes in farming are extremely seasonal. If growing a kharif crop or some fruit/vegetable which was to be marketed in the current season constituted a farmer’s main agricultural activity in the year, failure to get remunerative prices can have a very big impact on his/her total income for the entire year.

Thus, even a temporary disruption can cause long-term stress in a sector that has witnessed rising distress over the past few years. Farmer suicides have been the most macabre manifestation of such distress. Data on farmer suicide statistics published by the National Crime Records Bureau (NCRB) show that bankruptcy or indebtedness accounted for most farmer suicides in the country in 2014 and 2015. Although both these years were drought years, crop failures due to natural causes had a much smaller share in farmer suicides than financial reasons such as bankruptcy or indebtedness. This underlines the fact that the challenge of recovering the costs of production is often a bigger challenge for farmers compared to the challenge of raising output.

Coming as it did in the midst of peak farm activity, the note ban appears to have dented farm incomes significantly, and raised farm distress. Whether this has led to a rise in farm suicide rates or not is something we will know much later. What the data does suggest is that farmers, especially those growing fruits and vegetables, are likely to have been driven bankrupt because of the liquidity crunch.

A Twitter poll by the Union finance ministry inviting suggestions on which sector needs most focus in the upcoming budget has, midway through the vote, overwhelmingly picked agriculture, putting the farm sector over other sectors of the economy, Mint reported earlier this week. The poll ends on Thursday.

Union finance minister Arun Jaitley would do well to heed the verdict, even if it is based on a limited sample, and outline a comprehensive plan backed by adequate financial resources to tackle both the short-term pains and the structural problems of Indian agriculture.